The concept behind flipping houses is relatively simple. You buy a property, fix it up and sell for a profit. This may seem good on paper, but the devil is in the details. Flipping success relies on many things going your way to get the profits you desire. If things go wrong along the way, you could scramble to break even – or worse. Most investors think about the massive profits they can make, but rarely consider the downside. There is plenty of opportunity flipping houses, but you have to know what you are doing. Here are four fundamental principles that every home flipper should know:
1. Flipping is not gambling Flipping real estate is not gambling. There are risks with every property. Whether you are in Chicago or San Diego, there are certain aspects that need top be addressed. Before you buy, you need to know the market and the property you are buying. Where investors get into trouble is thinking they can make any property profitable. If don’t buy at the right price, nothing you do will add the value you need. Not every property is a good flip candidate. The best flips need a combination of the right price, the right location and the right work to be successful. Speed is important, but if you are not focused on the property you will find yourself in trouble. Making tens of thousands of dollars on one deal is great, but that is the exception rather than the norm. There is nothing wrong with making a smaller profit and doing more deals over the year. Flipping properties is not like gambling. If you think so you will run out of luck sooner or later.
2. Flipping works in any market If you have the right principles in place, a flip will work in any market. This means buying at the right price, and doing the right work. If you focus on current values, they will hit a high and come back down. All hot markets eventually cool off. Staying true to your principles and knowing how to find good deals can last forever. This starts with getting properties at the lowest possible price. Between short sales, foreclosures and sellers just looking to get out, there are many options. The property is always more important than the market. A good property in a bad market will keep its value much longer. There will always be trends from year to year. They may even work for a short period of time, but often turn south. Instead of looking where the deals are, look for good deals first. You can find them in any market.
3. Know your exit strategy There are three steps in a successful flip: buying, rehabbing and selling. Getting a property at your price is great, but you need to know what you are going to do with it. Before you buy, you need to know your exit strategy. Are you going to rent or sell right away? How much are you looking to sell for? How quickly do you need to sell? Every day that your property goes unsold is costing you money. Interest and repayment on loans, utilities, taxes and insurance add up every month. Before you even make an offer, you should have a good idea of what you can sell for. The more realistic you are, the better the deal will be.
Most new flippers think they can add value that isn’t there. Putting top of the line appliances or counter tops in doesn’t have the same return on every property. If you go over budget, you may be forced to list the house for more than you think. This may cause it to sit on the market a while and lose appeal. Your exit strategy needs to be realistic before you get the property. After you take ownership, you should have a good idea of what you are going to do and how. If you don’t have a plan in place, you will get pulled in a dozen different directions.
4. Know your worst case scenarios Not every flip is going to go exactly to script. In fact, there will be curve balls with almost every property. You don’t want to have a negative attitude, but you should consider the worst case scenario. They may never happen, but there is a chance they might. If you know what to expect, you can quickly react if something negative comes your way. The longer you wait to act, the worse the problem will become. You may be over budget or the roof may leak, but you will be ready to act . Your buyer may back out of the deal or the house may not sell at your asking price. There are many negative things that can happen on any deal. You should prepare yourself for any and all things.
There has never been a better time to start flipping real estate, but is important than ever to know what you are getting into before you start. For every three investors who have success, there is one that fails. This is usually because they only consider the positives without thinking about the negatives. Not every property you buy will be a success. It is important that you take the time to know the business and the risks involved before you get started.